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IAS 23
Borrowing Cost

Corporate Reporting 2021

Ramanathan AMN Thiagarajan
Introduction
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Borrowing Cost (BC) - Interest and other costs incurred by an entity in connection with the borrowing
of Funds
• Borrowing costs should be capitalised if they relate to the acquisition, construction or production of
a qualifying asset.

Qualifying asset = as one that takes a substantial period of time to get ready for its intended use or sale

IAS 23 stipu~ates that::

• Cap~talisaUon at borro. wu· g costs .shou ~. tjl1m mence · ,hen all of~ · e
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fo.i ~ow ng apply

expendit . re for ~he asset is : eing · curred
lborra'A,ing c.os s are be · g incurred
activities~ at are necessary to get the asset ready for se arie
· regress
Capitalisation
Capitalisation
• BC must be capitalised as part of the cost of the asset if they are directly
attributable to acquisition/construction/production.
• BCs should only be capitalised while construction is in progress.
• Capitalisation is suspended if active development is interrupted for extended
periods (temporary delays or technical/administrative work will not cause
suspension).
• Capitalisation of borrowing costs should cease when substantially all the activities
that are necessary to get the asset ready for use are complete.
• BC available for capitalization - actual borrowing costs incurred less any temporary
investment income. Mostly specific borrowings to finance a construction.
• General Borrowings – BC determined applying the weighted average general
borrowings rate to the expenditure incurred on the asset.
 10n (cont’d)
Capitalisation (cont'd)

Test your understanding ,3 - Hi-Rise

On 1 January 20X1 IHi-R~se aibta·rned p lanning p erim ission to buHd a
mew office building Construction ie.0 mmernced ion 1 r arch 20X 1. 'T o
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help fund the D0 s,t o·f this lbu'!ding a loam fo r $5 m~morn was taken out
1 1 1

from th1e ban . on 1 April 20X 1. The interie st rate on the loam vvas 110%
p er a - num.
Cons· riuctio of the building ceased dunirng the mo nth of Ju ly due to an
1 1

unexpected shortage o·f labour a d 1 m aterials.

By 31 December 20X 1, ·t he buiildirng was not oomplete . Costs incurred
1

to date w ere $t2 1

m ill~ion (excluding ~n1teres,t om the ~oan).

Requ ired :
Discuss the ac.c.ounting tr1e at1m 1e nt o:f t:he, above in t he f inan cia l
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statements of !H i-Rise, for th e y1ear end1e d 31 Decembe,ir 20X1.

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